Information disclosure, consumer returns, and operational costs in omnichannel retailing

Abstract

In the online retailing, consumers are commonly uncertain about the product's quality and fitness. To resolve these uncertainties, many pure e‐tailers adopt various omnichannel strategies to provide tactile product information for consumers. We build a model to investigate a pure e‐tailer's decision on whether to adopt an omnichannel strategy. Our result indicates that when the cost for each physical store is sufficiently low, the e‐tailer always adopts the omnichannel strategy regardless of the product quality. Moreover, the low‐quality e‐tailer's willingness to adopt the omnichannel strategy is nonmonotonic with the fitness probability when the travel cost factor is high. In contrast, if the cost for each physical store is moderate, the e‐tailer adopts the omnichannel strategy if and only if the product quality is above a threshold. The quality threshold may increase with the fitness probability. Higher fitness probability means a lower return rate and fewer benefits brought by the omnichannel strategy. Thus, the threshold of the quality is increased to guarantee a sufficiently large price increase when choosing the omnichannel strategy. Furthermore, when the cost for each physical store is high, the e‐tailer with a high‐quality product would abandon the omnichannel strategy if the fitness probability is moderate. Finally, we consider the scenarios in which the e‐tailer can endogenously determine the number of physical stores or provide a partial refund policy.